Legal update: Employment Update April 2014

An employer’s casual assurances or promises to employees during separation discussions may considerably reduce the employer’s rights and remedies.

Introduction 

The case of Igal Dafini v CMA CGM SA is a useful reminder that if an employer secures the agreement of a departing employee to some request or proposal of the employer – in this case a resignation to avoid embarrassment for both parties – and does so by giving specific assurances or promises, the employer may be prevented from relying on rights it would otherwise have.

Facts 

In the above case, the employee was engaged under an agreement for a fixed term and entitling him to a profit share during the full length of the period. The fixed term was 3½ years.

The head of the employer company wanted to terminate the agreement but in order to minimise any embarrassment for the employer and the employee, wished to publicly state that the employment was terminated by the employee’s resignation.  If it was a genuine and actual resignation, the agreement provided that the employee would lose his entitlement and right to a payment under the agreement.  He would also lose those rights if he was guilty of willful misconduct.

In order to secure the employee’s agreement to sign a resignation letter and publicly present the termination as one by resignation, at a late night meeting, the employer gave verbal assurances to the employee that he would receive the full payout of his entitlements under the fixed term employment contract as if a termination by the employer.

The employer sought to deny liability to pay those entitlements on the basis that in fact during the initial period of employment the employee had been guilty of acts of gross misconduct.

Decision 

The Court reviewed the decision of Boston Deep Sea Fishing and Ice Company v Ansell which confirmed than an employer has the right to rely on events – in this case the alleged acts of misconduct – taking place before a termination and which would have justified summary dismissal to avoid liability for entitlements, provided that the events were discovered after termination.

The Judge stated:

“It is the defendant’s case that the alleged “willful misconduct” of the plaintiff was only discovered by it after the termination.  If it were otherwise there would be great difficulty for the defendant to run the “Boston Deep Sea defence” as there would then be a very strong case of an estoppel, argued by the employee against the employer.”

“The fact is that on my finding, at the time of the termination of the employment the (employer) did assure the (employee) that he would be paid his entitlements under the (agreement) if he agreed to have the termination (as a resignation).  If the (employer) had been aware of the grounds of alleged misconduct and yet chose not to rely on them but went on to assure that plaintiff that if he agreed to dress up the termination as a resignation he would be paid the entitlement and the (employee) then proceeded to sign the resignation letter in reliance on the assurance, a classic case of promissory estoppel would be made out against the (employer)…even if there had been such alleged willful misconduct.” (emphasis added)

“I would hold if the (employer) had been aware of these willful misconduct and proceeded to give the assurance and the (employee) proceeded to rely upon it to sign the resignation letters and leave (the employer) immediately, it would indeed be inequitable for the defendant to go back on the assurance.”

“Accordingly where the employer is entitled to rely on the “Boston Deep Sea defence” depends, in part on whether it was aware of the alleged willful misconduct before it terminated the (employee’s) employment,

 …..

 I further hold for the reasons set out above that before the [employer] terminated the employee’s employment it was fully aware of the matters that it now relies upon in support of its defence.  If and in so far that it is necessary, I hold the defendant is estopped from relying upon those matters to retrospectively justify the termination of the employee’s employment.”

Lessons to be learned 

1.  From this case it is clear that where an employer is aware of grounds for dismissal but does not rely on them at the time of termination and negotiates with the employee for some additional benefit or agreement from the employee and in return gives assurances and promises that all is well, then the employer may lose its right to rely upon the acts of willful misconduct to deny liability for amounts which would otherwise be due to the employee in the absence of such misconduct.  The employer will be “estopped” from relying on those actions if that would be contradictory to its promise and assurances to the employee.

In the above case, the benefit obtained from the employee was his agreement to a resignation.  However, the principle could apply to anything the employee is persuaded to do such as:-

• The giving of a joint public announcement;
• Resigning from some other position held by the employee within the group;
• Handing back a company apartment or car or other property the employee is entitled to retain for a period;
• Agreeing to continue to act for a short period in some other capacity such as director or in a regulatory office;

Employers may face considerable liability for termination payments, payment in lieu of long notice periods or fixed term contracts, which could be avoided by a valid summary dismissal.  Those rights to summary dismissal may be lost if an employer is keen to secure some other act or benefit from the employee in the meantime – and in order to secure that, gives promise or assurance that all is well or that they will receive their entitlements in full, or other similar assurances, no matter how casual or informal.

2.  If a resignation letter is signed:-

• Under an agreement that the employee resigns but it will be treated as a termination;
• Under threat such as – resign or be immediately sacked;

The parties are not fixed with the legal position of it being a resignation, notwithstanding the signed letter, and the termination will be treated as a dismissal by the employer.

For further information, please contact:
Kim Boreham
Partner | Email

Russell Bennett
Partner | Email

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.